First, I wish we would stop being surprised by what’s happening in Europe right now. Second, I wish anti-austerity critics would start acknowledging that taxes have gone up too–in most cases more than the spending has been cut. third, I wish that we would stop assuming that gigantic “savage” cuts are the source of the EU’s problems. Some spending cuts have been implemented in a few countries. Also, if this data were adjusted for inflation (which I would prefer but the data isn’t available) it would possibly show a slight decrease and certainly a flatter line for all countries. However, the overwhelming take away from the European experience is that a majority of governments haven’t really implemented spending cuts, large or small, and some have even continued to grow.
I suspect the entire debate hinges on a difference in assumptions about the relevant spending baseline. If your theory prescribes significantly ramping up spending during recession, low or flat spending growth can look perversely “austere,” even if absolute spending as a % of GDP is very high.
Veronique sends an updated PPP-adjusted chart:
She adds (via email):
I am not denying that spending has been cuts in Greece, Italy and Spain. But I don’t agree that the spending cuts were savage or that’s all that’s going on in Europe. For instance these guys never talk about the impact of tax increases. Yet, Avent is willing to say that VAT props up inflation. That makes any cuts, even the smallest ones much more painful. I think there is a misplaced obsession with spending cuts and spending cuts alone being the source of all EUzone problems.